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Global Investors Need More Clarity On Indian Regulations

Global Investors Need More Clarity On Indian Regulations
Image credit: AECAL
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Peter Kabel, founding partner at AECAL - Asian E-Commerce Alliance, told Entrepreneur that global investors have very little clarity regarding Indian laws and regulations. Peter, along with Dominik Gyllensvärd are founding partners at AECAL.

AECAL is working towards strengthening the startup network between India and Europe. They have invested in 7 Indian startups so far which include GamezopStalkBuyLoveCloviaFlintoboxShieldSquareGreymeter and Instalively.

Concerns of global investors regarding India

Global investors have very little clarity about Indian rules and regulations. They can get very confusing at times. There should be more communication and promotion in the western countries about the attractiveness of the Indian Startup ecosystem and clarification of rules so that more investments can be pumped into the Indian startup system. My message to the Indian government would be to maintain consistency in rules across the states. For example, the variation in Value Added Tax (VAT) is very complicated for an outsider investing in the country. Also, the frequent changes in the government policies can also confuse the investor.

Additionally, India has developed a bad reputation regarding business partners. Global investors are often concerned that they would be cheated by Indians. That needs to be rectified gradually. In my case, I believe that I could be cheated by anyone in any other country. Hence at AECAL, we aren’t very concerned and treat this issue diligently. But clearly we look very close at the founders and their approach to business ethics. As additional safety we always try to invest together with Indian investors.

Investment thesis

We look at the e-commerce space which apart from the apparel and retail categories can also include many other sectors like healthcare. Healthcare can also constitute areas like diagnostic centres, labs, or business models in the educational space. Basically, everything where the internet supports transactions.

We like business models which control the entire value chain. For example, Clovia, which is designing, producing and selling their goods under their control. Only in fully integrated businesses you control the margin, which in price competitive areas is important. Amongst characteristics we look for the market reach, business model and passion for execution of idea.

Indian ecommerce space & recent FDI rules

I actually do not see the big news in the “new rules”, rather it seems a clarification of something which already is the current status. Interesting though is the aspect which e-commerce entities using the marketplace model cannot directly or indirectly influence the sale price of goods or services and must maintain a ‘level playing field’. If this is to be enforced, it might change the discount plagued Indian e-commerce significantly for the better, but the question will remain if this can be enforced. 

Another interesting aspect in my view is that the e-commerce entities can provide support services to sellers such as warehousing, logistics, order fulfilment, call centre, payment collection and other services. This is, however, to be read in conjunction with another condition which mandates that delivery of goods to customers must be the sellers’ responsibility. The permission is a welcome step and should encourage investment into the e-commerce support ecosystem.

Impression about Indian startup space

Surely six years back I wish I had invested in Flipkart. Today unfortunately valuations have developed in a way, which does not fit to business angel budget any longer. Flipkart’s growth obviously has been very inspirational for the younger set of startups. Globally, people are amazed at the way Indians have adapted themselves to the startup environment. It’s a “cool thing” to be working for a startup in India; and that’s a phenomenal factor. Today Indians complete their education aboard and come back to India to create a difference here because many see that their opportunities in their mother country are much more attractive than in the very competitive markets. Previously, Indians would complete their education and prefer to stay abroad and work.

However the coolness factor of startups , also leads to many copy cats and “me too” startup models that have emerged.  The herd mentality has crept into the system and has created entrepreneurs who start things without proper research and business plans, with little fit to the specifics of Indian market conditions etc.. The recent decline in funding will help clear off such entrepreneurs and only the ones with a clear vision will sustain. The recent slowdown in funding also will hopefully cool down the crazy discount wars, which are short term nice for the consumers and buyers, but in a long term will be dangerous for the entire e-commerce  system, because those are definitely not sustainable at all. 
Edition: October 2016

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